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Clemson game inspires S.C.’s biodiesel future
By Dan McCue
Staff Writer
If Dean Schmelter is to be believed, and there’s no reason why he shouldn’t be, the Lowcountry’s first biodiesel company was born while he and friend Jim Thompson tailgated prior to a Clemson football game last October.
“A couple of months earlier, I had taken my own diesel car to Black Forest Import Service in Mount Pleasant and the mechanic and I had gotten into a long discussion about fuel costs and America’s reliance on foreign oil,” said Schmelter, a chemist by profession and president of Sanford, Fla.-based Water Specialists Technologies.
“Finally he said, ‘You’re a chemist; why don’t you try to do something about it?’” Schmelter recalled.
The conversation inspired Schmelter to begin experimenting with various methods of converting waste cooking oil into nonpolluting biofuels for automobiles and other combustion engines.
While he tinkered, the business plan gestated until he and Thompson, who had recently sold his database-marketing firm in Charlotte, N.C., got together last October for a Saturday of Clemson football.
“By halftime, we had a company,” Schmelter said.
About 80 commercial biodiesel plants are in production today, including Carolina Biofuels LLC in Taylor, S.C. That is a nearly four-fold increase in the number of facilities nationwide since 2002, according to the National Biodiesel Board, a trade association.
Most of the facilities are located in the nation’s corn and soybean belt, a band of states extending from Minnesota to Texas, with the highest concentration of activity in Iowa. The average plant costs about $20 million to build and yields about 30 million gallons of biodiesel fuel a year.
And while ethanol continues to be the alternative-fuel leader in the United States—ethanol trumped biodiesel sales in 2005 by an almost 10-to-1 margin, with $15.7 billion in sales compared to $1.6 billion—industry analysts such as San Francisco-based Clean Edge predict the latter could be a $7 billion industry by the middle of the next decade.
But if there’s promise of a financial windfall for biodiesel producers in the future, Schmelter is taking a steady-as-he-goes approach to entering the industry. Unlike other companies that have dipped into the private equity pool to fund their startup enterprises, Schmelter and Thompson have decided to fund the company themselves.
They will open the first plant in North Charleston on Oct. 27, with a second plant slated to open in Sanford, Fla., early next year. Ultimately, Schmelter said, his plans call for a second facility in the Charleston area and additional facilities in Florida, Connecticut and North Carolina.
“Right now, my goal is for this facility to produce 6 million gallons of biodiesel a year and to serve customers within a 100-mile radius of this plant,” he said.
Charleston’s ample marine and trucking industries make it an ideal location for his facility, Schmelter said.
Other potential customers include utility companies and the state of South Carolina itself, he said.
“The state alone is a huge market,” he said. “After all, South Carolina is the only state in the union that owns all its school buses, and children’s exposure to particulates from petroleum-based fuels is a major environmental concern.”
Today, only about 1% of South Carolina’s energy is generated by biomass products such as ethanol and biodiesel, with 98% of its energy being imported from other states, according to the South Carolina Energy Office. Last spring, in an effort to take better advantage of the state’s plentiful biomass resources and support entrepreneurial efforts like Schmelter’s, the agency founded the South Carolina Biomass Council.
The council and local businesses aren’t the only ones seeing the potential of biodiesel in South Carolina. Recently, country music superstar Willie Nelson began selling his BioWillie biodiesel fuel at a Sphinx Oil truck stop near Greer.
But the availability of Nelson’s fuel at only one South Carolina location brings up a challenge to the industry: creating the infrastructure necessary to serve consumer as well as fleet demand.
Today consumers can buy biodiesel at only about 200 retail pumps across the nation. Schmelter said he isn’t interested in getting into the filling station business. Rather, he is encouraging the efforts of others who are planning to expand biodiesel’s availability in the Lowcountry.
“Clearly, given all the activity going on, biodiesel is a future that’s going to happen in this state,” Schmelter said. “Energy independence and independence from fuels that can have harmful side effects is a goal many people are working hard to achieve.”
Biodiesel can be made from a number of organic materials, including soybeans or oil-seed plants such as canola, as well as from animal fats. Schmelter said the North Charleston plant, which is on the grounds of the old Navy base near Virginia Avenue, will be a “multi-stock facility,” able to use all of the above.
In the sparse trailer Schmelter uses as his office, he has two test tubes filled with very different substances.
The first contains what looks like the dregs of deep fryer; the second, a liquid that is devoid of impurities and is a rich golden color.
“Open it,” Schmelter said of the latter. “See? Odorless.”
Out behind the trailer, in a 26-foot by 175-foot storage shed formerly used by the military, the heart of the biodiesel plant is already evident. “It’s nowhere near finished,” Schmelter said somewhat apologetically.
To the layman, the plant resembles a beer brewery, with tanks arrayed sequentially and purification stations situated throughout the facility.
“The fuel is made through what’s called a continuous batch process, dependent on the grade of the feed stock you’re using,” Schmelter said.
Best of all, he added, the plant has been designed to be a zero-discharge facility, with waste glycerin, methanol and water being captured, purified and reused in the ongoing process.
Typically blended with conventional diesel, biodiesel burns cleaner and releases fewer pollutants, including carbon monoxide and particulate matter, according to the National Biodiesel Board’s Web site.
Several factors are driving growth, including state mandates on renewable fuels and the national concern over dependence on foreign oil. The biggest factors, however, may be the high petroleum prices of the past several months and federal tax credits.
The federal excise tax credit offers producers and distributors of biodiesel that comes from virgin crop oils and animal fats a credit of $1 for every gallon of their product that they blend with regular diesel.
Most biodiesel sold in the United States is a blend of 20% pure biodiesel and 80% conventional diesel fuel, called B-20.
“Personally, I think blends are the way to go regardless of the incentives being offered,” Schmelter said. “They’ll be readily usable by people who already drive vehicles powered by traditional diesel fuel, and that will help widen its acceptance.”
Already, however, commercial demand across the United States is far outstripping supply, the National Biodiesel Board reports, and South Carolina isn’t the only state making the transition to biofuels a priority.
Minnesota has mandated that all diesel fuel sold in the state be B-20, and both California and Oregon have similar laws on their books that have not yet gone into effect.
Even if national production reaches 250 million gallons of biodiesel in the next year, as the NBB predicts, Schmelter believes the country’s hunger for the fuel will be far from satiated.
“Frankly, I don’t think that even at that level of production we’ll be producing 10% of what the market will eventually be,” he said.
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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